January 9, 2018
House Financial Services Subcommittee on Monetary Policy and Trade “Evaluating CFIUS: Challenges Posed by a Changing Global Economy”
Key Topics & Takeaways
- CFIUS and Export Control Regime: Several panelists expressed concern that the export control regime—which overlaps with CFIUS—has inadequately prevented foreign acquisition of sensitive U.S. technologies. Baker & McKenzie’s Rod Hunter acknowledged the importance of addressing weaknesses in the export control regime, but he argued that they should not be addressed by CFIUS. Barr stated that he wanted to “revisit” the discussion on the interplay between the export control regime and CFIUS reform, in particular whether CFIUS should serve as a “one-stop-shop” and the extent to which there should be greater integration between the two.
- Chinese Industrial Policy: Blair explained that Chinese armed forces have transformed “remarkabl[y]” since the 1990s in terms of developing offensive military capabilities. He added that its strategic acquisition of technologies “by fair means and foul” (i.e. acquisition and theft) increases the risk of a future military conflict, such as in the South China Sea.
- Dennis C. Blair, Co-Chair, The Commission on the Theft of American Intellectual Property, and former Director, National Intelligence, National Security Council
- Rod Hunter, Partner, Baker & McKenzie LLP, and former Special Assistant to the President and Senior Director, National Security Council
- Theodore W. Kassinger, Partner, O’Melveny & Myers LLP, and former Deputy Secretary, U.S. Department of Commerce
- Scott Kennedy, Director, Project on Chinese Business & Political Economy, Center for Strategic & International Studies
- Derek M. Scissors, Resident Scholar, American Enterprise Institute
Rep. Andy Barr (R-Ky.), Chairman, House Financial Services Subcommittee on Monetary Policy and Trade
Barr explained that the global economic environment has changed significantly since authorizing legislation for the Committee on Foreign Investment in the U.S. (CFIUS) was last updated in 2007. He expressed his desire to modernize CFIUS by “precisely” defining the technologies, ideas or techniques that need to be protected, while still welcoming foreign investment into the U.S. He expressed concern that the wrong approach might send “good money” outside of the U.S., or might induce innovative companies and labs to relocate outside of the U.S. to attract the investment they need to grow. Barr stated his intent to modernize CFIUS to better address current threats to national security while avoiding undue harm to U.S. interests. He added his goal to send legislation to the President’s desk before the August district work period.
Rep. Gwen Moore (D-Wis.), Ranking Member, House Financial Services Subcommittee on Monetary Policy and Trade
Moore underscored the bipartisan interest in reforming CFIUS to address modern day threats. Also, she recalled that the previous panel that testified before the committee agreed that the greatest challenge facing CFIUS is the lack of sufficient resources to manage its growing caseload.
Derek Scissors, Resident Scholar, American Enterprise Institute
Scissors highlighted his work compiling information on Chinese investments in the U.S. and other economies in his Chinese investment tracker. He explained that Chinese investment in the U.S. fell 50 percent in 2017, principally because those investments were “stopped by the Chinese government.” Scissors cautioned that inbound investments by private Chinese firms are no less risky than those from state-owned enterprises (SOEs), since even private firms in China have “no protection” against the Communist Party and would not be able to protect data or intellectual property even if they intended to do so. Scissors highlighted the rising risks from Chinese governmental entities and firms acquiring, coercing, or stealing sensitive technologies. He recommended that the Congress act “immediately” to modernize CFIUS, including by devoting more resources to it. He also urged policymakers to cooperate with other key allies after enacting such reforms.
Scott Kennedy, Director, Project on Chinese Business & Political Economy, Center for Strategic & International Studies
Kennedy maintained that China has long been engaging in “techno-nationalism,” adding that China’s industrial policy aims to acquire strategic technologies to forward the country’s economic and national security goals. Still, Kennedy recognized that U.S. companies, workers and consumers benefit in many ways from the U.S.-China commercial relationship. Kennedy expressed support for expanding the definition of “critical technologies” in the CFIUS reform bill, broadening its mandate to cover non-passive investments (e.g. not just majority control acquisitions), and maintaining the focus on specific countries of special concern.
Dennis C. Blair, Co-Chair, The Commission on the Theft of American Intellectual Property, and former Director, National Intelligence, National Security Council
Blair urged adoption of H.R. 4311, the Foreign Investment Risk Review Modernization Act of 2017 (FIRRMA). He added that companies that have stolen American intellectual property—or otherwise harmed American interests—should not be allowed to invest in the U.S. Blair also underscored the resource consequences of expanding CFIUS’s scope, stating that “policy without capacity is frivolous.” He recognized that the bill’s special hiring authority and application fee would help address the resource issue by getting the right people in greater numbers into important positions at CFIUS.
Theodore W. Kassinger, Partner, O’Melveny & Myers LLP, and former Deputy Secretary, U.S. Department of Commerce
Kassinger encouraged policymakers to consider whether CFIUS is optimally empowered and equipped with sufficient resources to address current national security threats. He maintained that any reform to CFIUS should: 1) continue the U.S.’s longstanding commitment to welcoming foreign investment; 2) enable the U.S. to compete for global capital by maintaining regulatory processes that are transparent, predictable and efficient; and 3) replicate the principles achieved through the 2007 CFIUS reform effort.
Rod Hunter, Partner, Baker & McKenzie LLP, and former Special Assistant to the President and Senior Director, National Security Council
Hunter explained that CFIUS’s central priority is assuring national security, which he said depends on innovation and the productivity of the economy. In undertaking CFIUS reform, Hunter encouraged policymakers to: 1) ensure CFIUS has adequate legal authority to reach investments of concern (such as by addressing the gap in “real assets” where there is no commercial activity, e.g. land acquisition); 2) provide CFIUS with adequate resources to address its increased caseload; and 3) avoid expanding CFIUS’s mandate to export control issues.
Question and Answer
Blair encouraged policymakers to allow flexibility in CFIUS’s mandate to ensure it has room to adapt to emerging and future threats without the need to continually reform the legislative framework.
Hunter cautioned that significantly expanding CFIUS’s authority would “overwhelm” the committee, and undermine its ability to make good decisions on important cases. He added that the timelines required to clear CFIUS review have grown longer due to the rising complexity of cases, as well as the strained resources.
Chinese Industrial Policy
Blair explained that Chinese armed forces have transformed “remarkabl[y]” since the 1990s in terms of developing offensive military capabilities. He added that its strategic acquisition of technologies “by fair means and foul” (i.e. acquisition and theft) increases the risk of a future military conflict, such as in the South China Sea.
Nexus with Export Control Regime
Blair explained the concern that the export control regime is not keeping pace with the fast-moving world of military technologies, and that it does not reach far enough into artificial intelligence and other emergent technologies. Scissors maintained that the export control regime has inadequately prevented Chinese acquisition of sensitive U.S. technologies.
Hunter noted that export control issues do arise in CFIUS reviews since there is overlap between them. He also recognized the concern that the policy process for designating which technologies need to be protected under the export control regime has not kept pace with the evolution of technology. While he acknowledged that addressing export control issues is important, he argued that they should not be addressed by CFIUS. He explained that CFIUS reviews are reactive and very time consuming, whereas the export control regime is more systematic and can set controls that apply across the entire economy.
Rep. French Hill (R-Ark.) encouraged his fellow policymakers to keep in mind that the export control regime needs a permanent reauthorization, adding that it works hand-in-hand with CFIUS.
Barr stated that he wanted to “revisit” the discussion on the interplay between the export control regime and CFIUS reform, in particular whether CFIUS should serve as a “one-stop-shop” and the extent to which there should be greater integration between the two.
Additional information about this event can be accessed here.